Leading wealth managers have received various ESG grades from Moody’s, highlighting the ongoing debate in the industry about the impact of private equity capital.
Of the 13 largest asset managers, only Charles Schwab received the highest rating of ‘Positive’ from Moody’s Investors Service, followed by Ozaik’s holding companies Focus Financial Partners and Cetera Financial.・The parent company of the group gives a “very negative” evaluation. Wells Fargo and Morgan Stanley received “somewhat negative” scores. The other seven companies fall under a positive ESG rating of Neutral to Low.
As another scale than rating agencies Overall grade for more common corporate bond issuersMark reminds us that: ESG criteria are often subjective And Moody’s analysts said they see high leverage in private equity-backed firms as a governance risk in addition to a governance risk. create a negative factor in their credit. Some financial advisers who work for private equity firms and the wealth management firms that get their capital reject that view.
after focus Agreement announced in February Moody’s said it plans to take the company private in a deal with Clayton, Duvilliers & Rice, which is valued at more than $7 billion. explained the movement “Negative credit” and poor governance are thought to be due to “history of such owners pursuing aggressive strategies and financial policies.” In contrast, many industry experts argued that the company: made a wise decision Withdrawal of listing status with private equity owners.
Moody’s ratings show a “general bias” against private equity firms engaging in “old-school LBO financial engineering,” but many of today’s buyout firms have been criticized for their “improved management practices and organizational efficiencies.” Moody’s director Rick Van Coolen said.research at LVW Advisors, a registered investment advisory firm based in Pittsford, New York, owned by Focus Corporation. Still, Moody’s ESG scores could “change the framework of criteria” when it comes to investing “a multitude of risks that need to be considered,” Van Coolen said.
“You look at the problem from a slightly different perspective, so I think that’s really helpful,” he said. “We do not seek to influence a client’s specific ESG goals or objectives. …When we talk to our clients, we explore with them and try to help them identify what is most important to them. and make sure your investment portfolio is aligned. ”
Government agency ESG scores
Moody’s assigned the following ESG “credit impact scores” to 13 wealth managers on a scale of 1 to 5. The range is from 5 or ‘very very negative’ (none of the companies received the rating) to 1 or ‘positive’.
- 4 or “Very Negative”: Focus Financial Partners, Advisor Group Holdings (Ozaic now), Aretec Group (parent company of Cetera Financial Group)
- 3 or “moderately negative”: Wells Fargo, Morgan Stanley
- 2 or “neutral to low” positive: Raymond James, FMR (parent of Fidelity Investments), JPMorgan Chase, UBS, Ameriprise, LPL Financial, Bank of America (parent of Merrill)
- 1 or “Positive”: Charles Schwab
Of the five companies with “moderately negative” or “very negative” ESG scores, Wells Fargo and Focus Financial declined to comment on Moody’s ratings, while Ozaik, Cetera and Morgan Stanley responded by email. I didn’t.
Moody’s representatives also did not respond to requests for interviews with analysts to discuss the company’s ESG scores. Of the 10,400 rated issuers across all industries with ESG scores, at least 20% are rated ‘very negative’ or ‘very negative’. agency said in a blog in April “ESG considerations have a material credit impact for nearly a quarter of rated issuers,” it said. Only 3% have a “positive” rating. Since 2019, the institution has “received over 50 awards for market-leading ESG capabilities.” according to the website.
Schwab is Received a negative ESG rating is the only company to receive a ‘positive’ rating on governance from other organizations that measure their impact in different ways. Private equity-backed Focus, Osaik and Cetera are in “very negative” governance territory alongside scandal-plagued but publicly traded Wells Fargo, according to Moody’s, while Morgan Stanley said it has a “moderately negative” governance risk. Each of the five megabanks in the group also has a “medium negative” environmental risk.
All 13 issuers scored “very negative” or worse in the “social” category, with Wells Fargo being the only issuer rated “very negative” in this category. As indicated in a memo cited by Moody’s, the damage to customer and corporate reputations from law enforcement incidents and cybersecurity risks involving customer personal information is increasing government agency’s public perception of companies. Last month I posted about Ameriprise credits.
Analyst Shachar Gonen said: “Given the regulatory focus on the fair treatment of customers, Ameriprise has seen an increase in industry-wide We face high customer relationship risk, which is mitigated by well-established policies and procedures.” in a note. “High cyber and personal data risks are amplified by the increased distribution of digital products, but are mitigated by a strong technological framework. However, an aging population underpins the demand for longevity in businesses.” Financial planning products are also included. ”
A critical view of private equity
This is how the industry is, which is why private equity-backed wealth management firms have negative governance scores. combat its long-term effects As investor groups flock to combine RIAs, brokerages and fuel records.Critics warn of heavy debt May interfere with service to advisors and clientsBut many corporate executives, thanks to private equity capital, Invest more in technology and operational upgrades.
“Private equity firms have a strong track record of responsibly investing in companies across our country, improving sustainability and building better businesses. Our private equity managers are among the best in the world. and is committed to growing the company and creating lasting value for its employees, retirees, and community members,” said the private equity advocacy group American Investment Council. spokeswoman Emily Schillinger said in an email. group membership This includes Clayton, Dubilier, Bain Capital, Genstar Capital, KKR, Kelso & Company, TA Associates, Warburg Pincus, and other private equity firms that have invested in asset management in recent years.
Clayton and Duvillier’s Focus acquisition deal would allow the company to “move away from the short-termism of being a publicly traded company, but would increase risk-taking capabilities and limit independent corporate oversight,” Moody’s analysts said. Stated. Lokaya Cisse wrote in a March memo:.
Last month’s “Credit Opinion” report on Ozaic also showed how Moody’s views the ESG risks of many companies in the industry. Analyst Gabriel Hack said in the study that the company has “low environmental risk” because it “has little direct exposure to carbon migration or physical climate risks.” But Huck’s analysis warned of far greater risks from the company’s governance.
“The company’s private equity ownership structure maintains high debt leverage in the normal course of business and aggressive financial and strategic policies evidenced by its high receptiveness to undertaking large-scale, innovative acquisitions. ,” Huck wrote. “Our experienced management team has a track record of successfully executing business strategies, including effectively integrating large M&A targets and navigating challenging operating environments that have limited financial flexibility. I’m here. [Osaic’s] Private equity sponsor Leverence Capital Partners effectively controls the company, with limited independent oversight at the board level. ”